Bernanke Moves Markets With Few Words

Markets are sharply higher this morning after Fed Chairman Bernanke spoke yesterday.  The surprising thing is that he really said very little that differed from recent statements.  The fact that he struck a slightly more dovish tone seems to have emboldened investor confidence.

Bernanke said that the current unemployment rate may be overstating the health of the job market.  He also said that they may keep rates low even after the 6.5% target threshold is reached.  This calmed the fears of those worried about rate hike.  As a result, the 10-year yield today has fallen back 8 basis points to the 2.60% level.  Bond funds and interest rate-sensitive stocks are rallying.

The dollar is also sharply lower today and that is boosting commodities.  Oil prices are lower near $104.90, but they have had a big run lately.  Gold prices are nicely higher to $1281.  Silver and copper prices are up sharply as well.

Asian markets were up across the board overnight, led by a 3.2% rally in China.  The Bank of Japan upgraded its assessment of the economy.  The Bank of Korea held rates steady at 2.50%.  And Australia's unemployment rate ticked a notch higher to 5.7%.

Europe's markets are also higher today.  Bundesbank pres. said the current economic outlook warrants low rates.

All S&P sectors are higher today.  Among industry ETFs, homebuilders are leading the early action while financials are lagging so far.

The volatility index is down to the 14 level.  We have been highlighting any move towards the 15 level as a good sign for stocks, and since the VIX started to move down towards and below this level it has coincided with a big rally to new highs in some of the indexes.

Trading comment: I am surprised that Bernanke's comments spurred such a strong reaction, but that has been par for the course this year.  Any moderately positive news has been met with buying demand for stocks.  The S&P 500 touched 1670 today and is now within striking distance of its highs at 1687.  The Nasdaq hit new highs today.  Historically the market has rarely rallied to new highs throughout the summer without a correction.  But we did have a 7.5% pullback in June, and maybe that is all we are going to get this time around.  Its tough to buy new positions ahead of earnings reports, so tread carefully.  But we continue to look for opportunities to add to.